Monday, June 30, 2014

The amount of cash in circulation in the US is growing at over 10% per year, and with it the need for short term fixed income product outside of bank deposits.

At the same time, treasury bills outstanding hit a new multi-year low this month.

Recently issued floating rate treasury notes (see discussion) provide an alternative for bills, but the amount hitting the market is immaterial to make a dent at this stage. Money market funds also jumped into the Fed's RRP program (see discussion), but the supply of that experimental product is also limited for now.

Private repo, one of the most common places for parking short-term cash outside of bank deposits, has been somewhat problematic as well. The supply of treasury collateral, large portions of which remain trapped on Fed's balance sheet, has often been insufficient. The recent rise in treasury settlement fails (failure to deliver) is an indication of such shortage.

Source: Barclays Research

Investors looking to park cash outside of bank deposits can also buy bank commercial paper (CP), which is what most "prime" money markets have been doing. But banks do not like to rely on commercial paper for funding because many found themselves unable to roll it during the financial crisis. The volumes of bank CP therefore remain subdued (with rates declining as well).

Bank commercial paper outstanding

The only place where we can see substantial growth in short-term product volumes is corporate commercial paper.

Corporate commercial paper outstanding

Highly rated investment grade corporations can borrow money for a month at as little as 5-7 basis points (annualized). With the CP market often cheaper than bank revolvers, a number of companies are using it to finance working capital.

Source: FRB

However, given the limited number of firms with ratings high enough to satisfy money market funds' requirements, the increased corporate CP volumes are insufficient to meet the rising cash management needs in the US.

Thursday, June 26, 2014

Japan's household spending fell sharply in May as the consumption tax hike took its toll. While some decline was expected, the 8% year-on-year drop puts the BOJ's optimistic economic forecast in doubt. As inflation cools with the diminishing impact of weaker yen (discussed here), the central bank is likely to accelerate asset purchases later this year.

Strong demand for senior loans is allowing some US corporations to push leverage to new highs. While the average leveraged buyout (LBO) transaction total leverage is just below the 2007 peak, the average leverage through the first-lien debt hit an all-time record this quarter.

Source: LCD

Similarly, even though we don't see as many 7x or 8x leverage LBOs as we did in 2007, the proportion of LBO's with 6x and greater hit a new record of 64%. So much for the Guidance on Leveraged Lending (see post).

Source: LCD

The Fed can attempt to limit the supply of such leverage by going after the banks who arrange this financing. But banks don't hold much of this debt on their balance sheets and instead syndicate it to funds and CLOs and non-bankng entities (such as Jefferies for example) can step in to do these deals. Therefore an attempt to reign in high risk lending should start by taming the demand. The demand however comes from the lack of yield in fixed income, and only when rates begin to rise will we see a slowdown in high risk financing. Of course the longer it takes to get there, the more painful the adjustment will become.

Wednesday, June 25, 2014

The global appetite for fixed income remains strong, driven by ongoing accommodation from central banks. The 10-year Bund yield touched fresh lows for the year today. The situation is similar for shorter maturities.

Source: Investing.com

This yield compression is not limited to bonds. As an example, Asian commercial property yields are at new lows as well. For those who want some background on the meaning of "property yield", here is a good overview.

Source: WSJ

The Credit Suisse Duration Risk Appetite Index is once again headed for euphoria after being in panic territory just a year ago.

The index measures investors' appreciate for being long fixed income product - as they shift from taper fears last summer to frenzied buying today. The longer the current environment persists, the more difficult it will be for central banks to begin rate normalization.

A quick note on home price appreciation in the US. Prices are now rising at less than 6% per year and the pace is slowing.

That’s a good thing - we want to avoid the affordability collapse taking place in the UK or France. In fact US home prices are still rising faster than homeowners’ expectations. The long-term housing price increases should be in line with wages. And we all know where that is.

Tuesday, June 24, 2014

The Iraq crisis has pushed oil prices up some 5% since the start of the militant Sunni uprising. Some blame the risks of regional conflict escalation on today's equity selloff in the US. But Brent oil has since stabilized and some are asking whether this is the extent of the Sunni rebellion impact. Is the "disruption" premium in crude oil markets now fully priced in?

There is no quick solution to the situation in Iraq and we are likely to see violence persisting for months to come. But the equity markets are telling us that the risks of significant energy price increases from here are not likely. The massive outperformance of the energy sector in recent days has almost vanished.

We've received a number of questions regarding the implications of the recent US court ruling on Argentina. In spite of the complexities involved, the situation is quite clear. The country just doesn't have the dollars to pay the 2001 restructuring holdouts (the bond holders that did not accept the restructuring terms). Decades of socialist-style mismanagement, populist policies, cronyism, and incompetent leadership resulted in the nation squandering a great deal of its national wealth. As China-driven natural resource supercycle came to an end, Argentina found itself on the edge of collapse. With inflation running at 35% and foreign reserves near multi-year lows, the country's options are limited.

As usual, the government will try more legal maneuvers in the US (see story) and will continue blaming the bond holdouts for trying to claim what's legally theirs. The creditors however are not a charity that is willing to dump their dollars into the pockets of Argentina's corrupt politicians. In the end, Argentina can either negotiate for a settlement with the holdouts or default. Sovereign bond default could however prove to be devastating.

JPMorgan: - Despite the political rhetoric, the Argentine government finds itself in a position of political and financial weakness; defaulting to avoid payment to holdouts is not easy to embrace. Suffering a credit event would have significant implications for the economy, and Argentina’s ongoing efforts to normalize its relationship with private creditors (settlements with ICSID claims, Repsol, and the Paris Club, and revamping statistics under IMF supervision) would be cut short. Opposition political leaders have generally publicly advocated a negotiation, which reduces the political cost for the president to engage creditors.

But even if negotiations do take place, the risk of default remains substantial.

Natixis: - The Argentinean government will continue to sell its good intentions and play the victim locally. Nevertheless, there is a serious risk of default and the clock is ticking. S&P downgraded this week Argentina to CCC-with a negative outlook since the court decision meant that the country will either default on the payment or face a distressed debt exchange. The execution risk is high as the needs to achieve an 85% participation rate in order to avoid a default.

These price increase are mostly driven by exogenous factors such as the 2012 drought and the Porcine Epidemic Diarrhea virus. Nevertheless combine this with higher energy and shelter prices and it's not simply Yellen's CPI “noise”:

Steve Liesman, CNBC: Is every reason to expect, Madam Chair, that the PCE inflation rate, which is followed by the Fed, looks likely to exceed your 2016 consensus forecast next week? Does this suggest that the Federal Reserve is behind the curve on inflation? And what tolerance is there for higher inflation at the Federal Reserve? And if it's above the 2 target, then how is that not kind of blowing through a target the same way you blew through the six and a half percent unemployment target in that they become these soft targets? Thanks.

Chair Yellen: Well, thanks for the question. So, I think recent readings on, for example, the CPI index have been a bit on the high side, but I think it's-- the data that we're seeing is noisy . I think it's important to remember that broadly speaking, inflation is evolving in line with the committee's expectations.

Monday, June 23, 2014

France remains the Eurozone's Achilles heel, as its economy stagnates. Estimates continue to show that the euro area ex-France is doing significantly better. Today's flash Markit PMI report for June showed French manufacturing and service sectors contracting faster than expected. Manufacturing orders were particularly poor.

PMI below 50 indicates contraction (source: Investing.com)

Markit: - There remained little sign of any turnaround in the performance of France’s economy at the end of Q2, with output falling for a second successive month and at a faster rate. The data are consistent with another disappointing GDP outturn for Q2 following stagnation in the first quarter... On these trends, the economic underperformance of France seems set to persist well into H2 2014.

A number of factors contributed to this weakness, including elevated political uncertainty in France. Here are some other problems that continue to plague the nation:

1. The unemployed in France now number 3.4 million, over 10% of the workforce. And the long-term unemployment rate is still rising.

2. French residential construction is mired in red tape, which discourages homebuilding. As a result, the nation's home affordability is worse than in the UK, a nation that is struggling with expensive real estate. With weak construction activity and tepid housing market, the French housing sector continues to put downward pressure on the GDP growth.

Reuters: - Strangled by regulation and high prices, weak French housing investment is proving a major drag on the euro zone's second-biggest economy as it struggles to stage a convincing recovery.
...
President Francois Hollande pledged more than a year ago to slash red tape holding back construction, hoping to bring within reach an oft-repeated promise to build 500,000 new homes a year.

But property developers complain that government measures since then have even discouraged home building and say they simply cannot make houses at prices would-be buyers can afford.
...
Figures from the OECD suggest prices relative to household income are now less affordable in France than in Britain, where the central bank has warned of a potential housing bubble.

3. Finally, the nation's public finances are a mess. Hollande's big tax increases did not produce the results expected. In fact, it's hard to understand how budget estimates could be this far off.

Daily Mail: - Francois Hollande is facing more criticism tonight after it emerged that France could have a 14 billion-euro black hole in its public finances after hugely overestimating tax returns.
Following a week that has seen his position weakened further by the National Front's European election victories, statistics revealed last year's receipts from income tax, VAT and corporation tax were wildly inaccurate.
The President raised the tax when he was elected two years ago, but the surplus from 2013 was only half the 30 billion-euros that was forecasted.

The Court of Auditors, which oversees the government's accounts, said the revenue projections in 2013 were wildly inaccurate, overly optimistic and based on inaccurate projections.

While most economists do not see another recession on the horizon for France, most expect this stagnation to persist for some time, dragging the Eurozone's growth lower.
________________________________________________________________________________

Sunday, June 22, 2014

In spite of the dovish tone from Janet Yellen at the press conference last week, the short term rates markets are betting that the Fed will become even more dovish in the months to come. Fed funds rates trajectory implied by the futures markets is significantly below the median projection by the FOMC.

Source: Barclays Research

Fed funds and eurodollar futures traders are playing the carry game - going long futures a couple of years out and riding them down the curve. The strategy had worked in the past. But is the Fed really going to turn more dovish? Barclays researchers believe that just the opposite will occur and the trajectory of rate hikes will steepen.

Barclays: - The “dots” also showed a faster pace for the hiking cycle. Notably, this occurred despite the fact that the revisions to the Fed’s inflation and UR [unemployment rate] projections were not very aggressive. We believe revisions are likely to continue in the same direction, i.e., lower UR and higher inflation; in turn, the path for the funds rate implied by the “dots” should continue to steepen.

The spread between the market and the FOMC is now close to extreme levels. The Fed's projected rate "dots" have been rising, while the futures traders continue to ignore it.

Source: Barclays Research

At some point however this is going to come to a head.

Barclays: - ... on balance, the Fed’s embedded economic projections are not too aggressive. While Fed Chair Yellen’s dovish stance may be playing a role in keeping rate hike expectations muted for now, if inflation surprises to the upside, Fedspeak can take a far less dovish tone (note the abrupt change by the BoE).

The US is facing a new housing crisis. No, it has nothing to do with subprime mortgages or bloated home equity balances. This time the nation is dealing with shortages of rental housing, a problem that will become increasingly acute in years to come and may result in a material drag on economic growth.

Americans are simply not building enough homes to accommodate the population's needs. The number of housing units completed per capita in the United States remains a fraction of historical averages. The slight improvements from the lows of 2011 have barely scratched the surface.

Similarly, in spite of recent increases, residential construction spending as a fraction of the GDP remains at the lowest levels than at any time since WWII.

At the same time demand has been on the rise. As an indicator, the chart below shows Google search frequency for rent related phrases.

The myth out there is that this problem is somehow limited to some of the coastal areas of the United States - NY, Florida, California, etc. It is not. Just take a look at the rental vacancy trend in the Midwest.

The last point represents Q1, 2014

This shortage is of course translating into rising costs of shelter across the country. The overall shelter CPI is headed toward 3% and the rate of just rental cost increases is even higher. It is materially above the overall CPI rate and expected to rise further.

This trend, combined with massive amounts of student debt (see discussion) will be increasingly taking a bite out of consumer spending. The percentage of "housing cost burdened" households (those who spend more than 30% of their income on shelter) has been rising rapidly.

JCHS (Harvard) - The recent deterioration in rental affordability comes after a decade of lost ground. The share of cost-burdened renters increased by a stunning 12 percentage points between 2000 and 2010, the largest jump in any decade dating back at least to 1960. The cumulative increase in the incidence of housing cost burdens is astounding. In 1960, about one in four renters paid more than 30 percent of income for housing. Today, one in two are cost burdened. Even in 1980, following two decades of worsening affordability, the cost-burdened share of renters was just above a third.

Given such demand, why does residential construction remain so tepid? Since 2008 the acquisition, development and construction (AD&C) lending has been too restrictive to accommodate the rising demand. That in turn has led to insufficient numbers of developed lots for construction.

US News: - According to a recent National Association of Home Builders industry survey, 59 percent of builders reported the supply of developed lots on their areas was low or very low. This is a significant increase from a similar survey undertaken in September 2012. In fact, the 59 percent response is the highest rate recorded since 1997, when this first survey question was first posed.

Other reasons include highly restrictive zoning rules, as existing homeowners limit new construction in order to boost their property prices. Whatever the case, residential construction is running at half the level of longer term housing demand. And while the nation can get by for now, consider the situation 5-10 years down the road.

Economists, politicians, and the media continue to focus on slow home sales as an indication of weak housing markets. But they are simply "fighting the last war". The looming crisis is not about how often homes change hands, but about the shortage of rentals and the rising cost of shelter that the new generations of Americans will increasingly face.

Saturday, June 21, 2014

The pace of US consumer credit expansion remains brisk. A quick look at consumer loan balances at large US commercial banks shows a spike that started in February of this year.

Note: This data excludes mortgages and government-held student loans

It is useful to look at the breakdown of this growth. As discussed earlier (see post), we know that auto loans have been the darling of large US banks, particularly as mortgage refinancing slowed. The steady growth in auto finance at these institutions continues.

But auto loans only partially explain the spike in consumer finance in recent months. The other component of consumer finance on banks' balance sheets is revolving credit, which is mostly credit cards. In late March of this year, credit card debt balances at large US banks have bottomed - after years of declines. With credit card and auto finance now both on the rise, the overall US consumer credit expansion has accelerated.

Friday, June 20, 2014

The US energy markets continue to adjust to rising domestic production and shifting delivery capabilities. The bottleneck of transporting oil from Cushing, Oklahoma (settlement point for WTI futures) to the US Gulf Coast has been eased via improved pipeline capacity as well as higher rail deliveries. The oversupply of crude at Cushing rapidly dissipated.

Source: EIA

Crude supplies at the Gulf Coast on the other hand rose sharply (see discussion). However as the second chart below shows, when measured in terms of "days of refinery throughput supply" (the amount of time it takes refineries to absorb all this crude) the region does not look so oversupplied.

Source: EIA

That's because as more crude was being delivered to the Gulf Coast, the refining capacity in the region continued to grow.

EIA: - Gulf Coast refineries have been running at near record levels for much of 2014. Through May, crude inputs at Gulf Coast refineries averaged 8.1 million barrels per day (b/d), an increase of 0.5 million b/d compared with the same period in 2013. Price-advantaged crude oil and natural gas feedstocks have encouraged high utilization rates at PADD 3 [Gulf Coast] refineries. Crude oil distillation capacity additions have also supported higher crude runs. All other factors equal, increased refinery crude runs increase crude inventories required for operations.

Source: EIA

Part of the reason for this rising capacity has been the improvement in refining profitability. Crack spreads (price spread between gasoline or heating oil and crude) have risen substantially this year.

Source: Barchart

As a result, independent refinery shares have substantially outperformed the overall equity market.

Source: Ycharts

Some analysts believe that the conflict in Iraq (see discussion) could benefit US refineries further. With supply disruption risks widening the Brent-WTI spread these companies' margins would improve.

Barron's: - As rebels seize control in Iraq and threaten the flow of crude, shares of some U.S. oil refiners are well-positioned to hit new highs. With extremist Sunni militant incursions threatening Shiite control in Iraq, the international Brent oil benchmark price, on which U.S. gasoline prices are based, is up more than 4% in June to $114.99 per barrel. The U.S. benchmark is up 3% to $106.11 per barrel.

Thursday, June 19, 2014

Congratulations go to the Bank of Japan who is now the largest holder of the nation’s government bonds. But no worries. This week Lord Turner of Ecchinswell, a former chairman of the UK’s Financial Services Authority (FSA) suggested that the bonds the Bank of England purchased as part of QE should be “monetized”. The bonds would remain permanently on the central bank’s balance sheet without the government ever paying them off. Of course it’s unlikely to happen in the UK in the near future, but Japan looks like a perfect candidate for monetization.

At her press conference yesterday, Janet Yellen dismissed the stronger than expected CPI report (see chart), as "noise". She was quite clear. Inflation remains below the Fed's target and is likely to stay there for some time.

Inflation sensitive assets such as gold however rallied in reaction to this dovish stance from the Fed.

Source: Investing.com

If the CPI report from the US Bureau of Labor Statistics was "noise", is there another measure that can give us a sense of where prices are headed? Today's Philly Fed report provided one such an indicator. The Manufacturing Prices Paid Index clearly showed firmer upstream prices.

And market-based inflation expectations, while still relatively low, have definitely moved up recently.

TIPS-based inflation expectations (source: Ycharts)

Certainly the Fed wants to see this trend sustained for some time. After all, inflation remains at dangerously low levels in the euro area and we could see price increases stalling in Japan later this year (see discussion). But we have clear indications that at least for now, firmer inflation in the US is not just "noise".

Wednesday, June 18, 2014

The Federal Reserve officials continue to debate the level of slack in US labor markets. And a large number of economists, analysts, and investors believe that there are so many discouraged workers sitting on the sidelines, companies have a nearly unlimited pool to draw from - even as hiring improves (see chart). After all, just look at the labor participation rate.

But there is more to the story here. JPMorgan's economists decomposed this decline in participation rate since the start of the Great Recession. Here are the key drivers.

Source: JPMorgan

It will be hard for companies to draw from the "disabled" or the "retired" groups, leaving "other" as the source of additional labor (on top of those who are "officially" unemployed currently). That "other" pool has actually not increased over the past 3-4 years in spite of the declining participation rate.

Furthermore, the "other" pool can be broken down into three categories as well. The "discouraged" workers are therefore not currently the driver of this declining labor force participation. In fact that group shrank in 2013.

Source: JPMorgan

JPMorgan: - Fujita’s analysis shows that the initial leg down in the LFPR [Labor Force Participation Rate] was due primarily to a sharp rise in discouraged workers and school enrollments (from the "other" category). These categories since have stabilized. The decline in the LFPR from these categories subsequently was reinforced by a trend rise in disability, although this factor, too, now may be leveling off. More recently, an acceleration in retirement has been pushing down the LFPR.

This tells us that the pool of available "discouraged" workers and therefore slack in the US labor markets is not as large as some believe. More importantly, the "discouraged" group is not growing - even as the labor force participation rate continues to fall.

It was quite strange listening to Janet Yellen's press conference this afternoon. She clearly expressed concerns about declining volatility in the markets, saying that “volatility both actual and expected in markets is at low levels”. She proceeded to say that we have plenty of uncertainty associated with the trajectory of the Fed's monetary policy and market participants should take that into account when making their decisions. The message is: investors are not pricing in enough risk premium. She was echoing comments made by the Fed's William Dudley, who recently expressed concerns about declining volatility across multiple asset classes, saying it "makes me a little nervous".

Similarly, Janet Yellen proceeded to point out - once again - how the Fed is concerned with the lofty valuations in US corporate high yield markets. As she was talking however, implied volatility (VIX) declined sharply and high yield bonds rallied.

The Fed officials continue to be surprised and even annoyed by the diminishing risk premium in the markets. By striking a rather dovish tone however, the Fed is directly creating the issues that Janet Yellen is uneasy about. The irony is that we saw risk premium decline further today - while she was speaking about these concerns.

With the UK's property prices continuing to rise (see chart) and the labor markets improving (see chart), the only major factor that could force the Bank of England to delay the first rate hike until next year is the slowing inflation rate. Part of the issue for the UK is the "contagion" from the Eurozone. Half of UK’s trade is with Europe.

Source: ONS

It's hard for UK companies to raise prices when you have disinflationary pressures and declining labor costs across the Channel.

Monday, June 16, 2014

The Bank of Japan's balance sheet continues to expand at a fairly constant pace. Relative to the size of the GDP, this is already the largest QE program in the world. Yet some analysts believe that the BoJ will accelerate securities purchases later this year.

Source: BoJ

Here is why. Credit Suisse for example projects that Japan's inflation rate has peaked and is about to begin declining. In fact CS researchers see a complete divergence between the BoJ's own projection of inflation and reality. A number of other researchers (for example Scotiabank) agree.

This potential decline in inflation dramatically raises the risk of Japan slipping back into deflation - something that the BoJ and the Abe administration have been desperately trying to avoid. As inflation begins to lag the BoJ's projections, the central bank will accelerate QE to new highs.

CS: - As long as it sticks to its original commitment to achieve +2% CPI inflation by summer 2015, the BoJ is likely to decide on additional monetary easing once underperformance of the actual CPI inflation rate against its projection becomes visible.

The reason many researchers believe Japan's inflation may have peaked has to do with the yen.

As discussed earlier (see post), a great deal of the recent inflation improvements in Japan was the result of weaker yen, which declined sharply in 2013. But more recently the yen has been range-bound (and in fact strengthening against the euro), which will halt a great deal of the price increases we saw earlier. The inflation rate is therefore expected to begin declining.

But can inflation in Japan be sustained without further weakness in the currency? Such an outcome remains unlikely because there is no evidence that labor costs will begin increasing any time soon. It is difficult to sustain price increases without labor costs and wages rising as well.

CS: - We think policymakers are on the wrong track: we refuse to be optimistic about inflation being close to target at end-year given that unit labor costs fell by 2.5% over the last 12 months and seem set to be unchanged for the next year.

This tells us that at some point later this year, the BoJ will shift into an even higher gear. The central bank's already bloated balance sheet will go "parabolic" in order to get back on track with the much publicized inflation target of 2%. The success if Abenomics depends on it.

Sunday, June 15, 2014

More evidence is emerging in support of the growing skills mismatch in the United States (discussed earlier.) Job vacancy rates are rising much faster than hiring rates and the NFIB survey shows smaller firms are having a tough time filling some openings.

Source: Scotiabank

People forget that corporate needs for skilled labor have changed materially since the start of the Great Recession. The demand for employees with technical and specialized skills has increased in the US as it did in other industrialized nations. Yet over the past couple of decades many US firms have systematically gutted training and apprenticeship programs and shifted a great deal of high tech production abroad. Companies were rewarded with higher share valuations for "offshoring" and cutting investment in training, whether or not it made sense.

As an example of lacking specialized skills, iPhones could not be built in the US today - even if labor costs were not an issue. That's because there simply aren't enough American engineers and technicians who can operate the high-tech/high-volume manufacturing facilities that Foxconn runs in China.

US firms (and the shareholders) are partially responsible for this skills shortage that is now plaguing them. The neglect from the federal government also contributed to the situation. Of course it doesn't help that US high school students rank significantly below the OECD average in math and science.

The US has the infrastructure, the energy resources, and the relatively low labor costs to grow high-tech manufacturing and "knowledge-intensive" services sectors. Yet the skills mismatch will continue to generate a drag on this growth in years to come.

Carney of course is talking about an interest rate hike in the UK. Indeed, as UK's unemployment rate drops to new post-recession lows (see chart) and home prices continue to rise, the time to begin rate normalization is fast approaching. The Bank of England's (BOE) policy trajectory is diverging sharply from that of the ECB - as reflected in short-term rate markets.

The spike in the 2y UK gilt yield (above) was in reaction to Carney's comment, while the drop in 2y German yield was in reaction to Draghi's recent announcement of negative rates. Currencies had a similar reaction, as the euro tanked against the pound.

When do markets anticipate this first rate hike in the UK? According to the forward overnight index swap (OIS) curve, we are looking at early 2015 for the first increase - followed by a steady pace of hikes for at least 2 years. This is about half a year earlier than the expectations of the first rate increase in the US.

Source: BOE

While some view this timing as appropriate or even too optimistic, Carney could in fact take action even sooner. The reason has to do with real rates (rates adjusted for inflation expectations). In spite of UK's higher rates relative to other developed economies, the Bank of England's current policy remains highly accommodative. Unlike in the US for example, where implied real government rates for maturities longer than 6 years are positive, the UK's entire real yield curve is in the negative territory. This level of BOE accommodation puts additional pressure on Carney to pull the trigger on rates - and potentially surprise the markets.

Source: BOE

Citi (Michael Saunders): - In our view, this speech marks an important change of tone from the Governor, removing any sense that the MPC [Bank of England's Monetary Policy Committee] is on auto-pilot and locked into inaction until some distant preset date. We continue to expect that strong economic growth and the tightening labour market will prompt the MPC to start to hike before year end, with rates rising earlier, further and faster than markets currently price in.